My boss had mentioned it, the book I am reading talks about it. I have even practice it without knowing.
How many times have you bought anything on impulse?
Sometimes you don't even realize it until you open out your wardrobe and see that shirt that you have only worn once, or you open that drawer to find a watch that you have worn 2 times, or you simply discover something that you have never use before.
Price is a factor that determines impulse spending. You will be thinking that it does not cost much anyway.
But you know it all adds up. Why spend money that does not increase your asset or value?
How do you cut that unnecessary spending?
You got to change your mindset
i) You won't lose the golden opportunity
Most of the things in life have a second, third, fourth chance. Even if the sale is going to end today, there are another sale with another similiar or better item opening up tomorrow.
ii) You don't need it, you just want it.
Few things in life are absolutely necessary (notice you are living very well without the thing you wanna buy.)
iii) Delay pleasure always taste better
Notice times where you delay in taking your meal, and finally FOOD. Doesn't it taste better?
Imagine you earning $2,500/month for the last 10 years. And just by saving 20%, which is $500/month and investing that amount with just a return of 5% per annum. You would have around $77,000. With a return of 10% per annum, you could end up with around $94,000.
So what after you saved?
You could spend the saved money on things better.
i) Somebody once said, to always invest in yourself.
He does not mean to splurge on yourself, but rather to increase your mind asset, to make yourself more valuable.
For eg. By studying more, which also means getting a higher paid. And of course skills and knowledge is always not enough.
ii) By increasing your asset
That means those things that earn you an income. Your house you are living in and your car is not an asset, those things depreciated in value.
But a house for rental earns you passive income, or a unit trust or stock that earns you capital returns and dividend.
Let’s just say you have saved that $94,000 stated above.
By using the money you save to pay the down payment of a house and renting it out. You could be getting a monthly passive income of $2,000, which then can be use to pay for the loan you took. That house will be yours after around 25 years. You could continue the same thing after another 10 years, and you could end up with 3 apartments when you retired, and fetch you around $6,000 per month passive income for your whole retirement days. Not bad huh.
Is there anytime you spotted something good, (for eg. A very cheap house) that you could purchase, just to realize you have not enough money to buy?
iii) You could also use it to start a small business, invest etc...
All these could be lost if you would spend that $500 per month on your shoes, fine dinning, hair, electronic products, clothing. Basically all those liabilities that does not earn you money.
Of course I am not saying not to spend, but think before you spend.
i) If you want to buy something, wait 7 days.
ii) Does this item increase your value or your personal asset?
If it does, then you should not consider anymore. BUY! Things like books to show you how to increase your finance etc... Buying nice clothing so you look more presentable, so you could close more sale or get a better paying job. That increases your asset.
iii) Is this item a liability?
Always invest in insurance, and always invest:-
Insurance-
Don't let any catastrophe rob you of your hard earn money. Imagine saving for last 10 years and finally got that $100,000. Then just because of a need to go for some heart surgery, money all gone! Is it worth it?
Investment-
By not investing, you are losing money in the long term. Your $3 that you can use to buy a plate of chicken rice today will only pay for half a plate 20 years later. This is due to inflation, at close to 3% inflation per year; your saving with 0.25% bank interest are losing 2.75% every year.
What do you think the banks are doing with the money you put inside the saving account?
The answer is that they are investing your money and earning 30% with, and only paying you back 0.25%. Why not reap some of the benefit yourself?
I heard people saying this, "The financial firm are earning 30% with the money you put with them, and only giving you 10%. Why do you wanna invest with them?" I would say, "the bank are doing the same with your money and only giving you 0.25%, you want 10% or 0.25%?"
Of course the higher returns come only when you buy stock yourself, but always higher risk, isn't it? Do you have the know-how? The time? The opportunity to buy into various companies? If not, let someone that do that as a full-time job with the expertise do that for you. Buy some unit trust funds. Let me recommend some for you.
Last note
It is always better to relax, enjoy your wine, buy your Gucci, live in a bungalow etc... when you are older, and also for a longer period of time, say 30 years.
After your retirement, when you have no income for the next 30 years, do you really want to spend most of your money for a few years and later lose everything? To be poor and miserable and having to depend on others for the rest of your senior years.
